Private money lending in real estate: how it works and what to expect

Private money lending is one of the most straightforward ways for accredited investors to deploy capital into real estate — earning a fixed return secured by a physical asset, without the operational complexity of property management or the liquidity risk of equity.

Here is how it works and what to evaluate before you write a check.

The basic structure

A real estate operator needs acquisition capital — typically to close quickly on a Subject-To or Seller Finance deal, fund a renovation, or bridge to refinance. They borrow from private lenders at a fixed rate, secured by the property as collateral.

You, as the private money lender, earn:

• A fixed interest rate (typically 10–12% APR in the current market)
• Monthly or quarterly interest payments
• Return of principal at loan maturity (typically 12–24 months)

The property secures the loan. In most private lending arrangements, you hold first-lien position — meaning if the borrower defaults, you have the right to foreclose and recover your capital from the asset before anyone else is paid.

What first-lien protection means in practice

First lien means you are first in the capital stack. If a $200,000 property is acquired with a $140,000 private loan at 70% loan-to-value (LTV), you have $60,000 of equity cushion between your loan and any loss exposure.

For the loan to impair your principal, the property would have to lose more than 30% of its value AND the borrower would have to default. In stable metro markets with sound underwriting, this combination is rare.

What to look for:

• LTV at or below 70–75% (conservative buffer)
• The operator's track record and ability to execute the business plan
• A clear exit strategy (refinance, sale, or hold with cash flow to service the loan)
• Geographic market strength — avoid markets with declining population or structural oversupply

Common deal structures in the co-living context

In co-living acquisitions, private money typically funds:

1. Acquisition bridge — Capital to close a Subject-To or Seller Finance deal while the operator completes tenant placement and stabilization
2. Conversion capital — Funds for interior re-engineering to co-living suites (furniture, minor construction, permits)
3. Working capital — Bridge through lease-up phase before stabilized income covers debt service

Each structure has different risk profiles and timelines. Conversion capital typically carries slightly higher rates due to execution risk. Acquisition bridges at low LTV are the most conservative.

Questions to ask before lending

1. What is the LTV on this loan?
2. What is the exit strategy and timeline?
3. What is the operator's track record on similar deals?
4. What happens if the business plan takes longer than expected?
5. How is my collateral protected during the loan period (title insurance, property insurance)?
6. What are the prepayment terms if the borrower exits early?

Return expectations in 2026

In the current rate environment, private money lending to co-living operators typically commands 10–12% APR, reflecting:

• The illiquidity premium versus public market fixed income
• The operational execution risk of co-living conversion
• The structural complexity of Subject-To and Seller Finance acquisition structures

These rates are meaningfully above comparable-duration Treasuries and investment-grade corporate bonds, with hard asset collateral as downside protection.

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This article is for informational purposes only and does not constitute investment advice or an offer of securities. All return figures are illustrative targets. See full disclosures.